How to Prevent an IRS Audit in the Future
Disclaimer: This blog post is not legal advice and is for educational purposes only. This blog post does not create an attorney-client relationship. If you would like to speak to an attorney about a legal matter, please reach out to us today!
Starting a new year is a great time to take control of your financial health, including avoiding unwanted surprises like an IRS audit. While no one can guarantee that you won’t be audited, there are proactive steps you can take to reduce the risk of an audit and ensure that your tax filings are accurate and complete. In this post, we’ll cover practical strategies to minimize your chances of being audited in the future, and ensure that you start the new year with peace of mind regarding your taxes.
1. File Your Tax Return on Time
One of the most common reasons the IRS audits taxpayers is because of late filings or non-filing. The IRS takes notice when tax returns are filed late or are missing altogether.
Why It Matters: Filing on time (or applying for an extension if needed) signals to the IRS that you are serious about your tax obligations and are not trying to avoid them.
Tip: If you can’t file by the due date, request an extension. Just be sure to pay as much of your tax liability as you can by the deadline to avoid penalties and interest.
2. Ensure Your Information Is Accurate
Errors on your tax return, whether due to math mistakes or incorrect information, can trigger an audit. The IRS often flags returns with discrepancies between reported income and third-party information (like W-2s or 1099s).
Why It Matters: Inaccurate information or math errors can raise red flags for the IRS, especially if your reported income doesn’t match what’s been reported by your employer or financial institutions.
Tip: Double-check all information on your return, including social security numbers, income, deductions, and credits. If you have a complex situation, consider hiring a tax professional to ensure everything is accurate.
3. Avoid Claiming Unreasonably Large Deductions
Claiming excessive deductions, especially those that don’t match your income level, can make your tax return stand out to the IRS. While legitimate deductions like business expenses, mortgage interest, and charitable contributions are allowed, claiming deductions that are too large relative to your income may lead to an audit.
Why It Matters: If your deductions are out of line with what is typical for someone in your income bracket or industry, the IRS may take a closer look.
Tip: Only claim deductions that you can fully support with proper documentation. Keep receipts, invoices, and other records to prove your deductions are legitimate.
4. Keep Detailed and Organized Records
Keeping accurate records is crucial in preventing an IRS audit and defending yourself if one happens. The IRS expects taxpayers to maintain adequate documentation to support their income, deductions, and credits.
Why It Matters: Having detailed and organized records makes it easier to respond to IRS requests for documentation if necessary, and helps avoid costly errors.
Tip: Keep records of all business expenses, receipts, mileage logs, and financial statements for at least three to five years, which is the period the IRS typically has to audit a tax return.
5. Report All Income, Even the Small Stuff
Failing to report all your income, even small amounts, can increase your chances of being audited. The IRS has access to third-party reports, such as those from employers, banks, and freelance platforms, and they will notice if you fail to report income that was already reported to them.
Why It Matters: The IRS cross-references income reported on tax returns with other records, and failing to report income will likely trigger an audit.
Tip: Report all income, even side jobs or income from freelance work. If you’re self-employed, make sure to report all your earnings, and keep records of your income from all sources.
6. Be Careful with Your Business Expenses
Business owners are often subject to audits, especially if they claim deductions that appear excessive relative to their revenue or industry norms. The IRS will pay close attention to business expenses such as travel, meals, and office deductions.
Why It Matters: The IRS will scrutinize business expenses, particularly if they seem inflated or unrelated to your actual business operations.
Tip: Keep thorough records of all business-related expenses and be prepared to justify them. If you claim a home office deduction, make sure the space meets the IRS requirements and is used exclusively for business purposes.
7. Consider Filing Electronically
Filing your taxes electronically can reduce the risk of errors that might attract IRS attention. Online tax preparation software often includes checks to ensure that your return is accurate and complete, reducing the chance of mistakes.
Why It Matters: Filing electronically minimizes the risk of math errors and omissions that might lead to an audit.
Tip: Use trusted tax preparation software or work with a professional to file your taxes electronically. Many programs offer built-in audit protection, which can help guide you through the process.
Example
As the New Year begins, Jake, a small business owner in Houston, is reflecting on his financial situation. He had a stressful experience with an IRS audit last year after making a few mistakes on his tax return, including missing income from a side job and claiming large business expenses that he couldn’t fully document. The audit was time-consuming and costly, and Jake is determined not to repeat the same mistakes in the new year.
In January, Jake makes a resolution to stay on top of his finances. He starts by organizing his receipts and financial records from his business. He also decides to hire a tax professional to ensure that his returns are accurate and all income is reported correctly. By the time tax season rolls around, Jake files his taxes early, keeping a close eye on his deductions and income. He makes sure that his deductions are reasonable, that all income is reported, and that his records are complete and organized. The New Year’s resolution pays off: Jake’s taxes are filed without any issues, and he avoids the stress of another audit. He enjoys a fresh start in both his business and his personal finances, and he enters the year feeling confident and prepared.
A new year is the perfect time to take control of your finances and reduce the risk of an IRS audit. At Huenefeld Law, PLLC, we help Texans file accurate returns, avoid common audit triggers, and navigate the complexities of tax law. Whether you need help organizing your tax documents, claiming the right deductions, or filing electronically, our team is here to help you start the year off right. Contact us today to ensure that your taxes are in good shape and that you’re fully prepared for the year ahead.
About Huenefeld Law, PLLC
Huenefeld Law, PLLC is a Texas law firm based in Longview, Texas, dedicated to helping individuals and businesses with their legal needs. We specialize in estate planning, business planning, asset protection, elder law, tax litigation, and business formation services.
Whether you prefer in-person consultations or the convenience of online meetings, we tailor our services to fit your busy schedule. Ready to plan for the future or protect your assets? Contact us today to schedule your free consultation and let us help you navigate your legal journey with confidence.
